King & Spalding LLP
1185 Avenue of the Americas
New York, New York 10036-4003
www.kslaw.com
Stephen M. Wiseman
Direct Dial: (212) 556-2265
Direct Fax: (212) 556-2222
swiseman@kslaw.com
April 26, 2007
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Mail Stop 4561
Attention: Mr. Daniel Gordon
Accounting Branch Chief
Re: Wellsford Real Properties, Inc.
Amendment No. 2 to Registration Statement on Form S-4
Filed April 11, 2007
Registration No. 333-139705
Ladies and Gentlemen:
On behalf of Wellsford Real Properties, Inc. ("Wellsford"), we are
delivering this letter for filing under the Securities Act of 1933, as amended.
Wellsford has received the Staff's comment relating to Amendment No. 2
(the "Second Amendment") to the Form S-4 (Registration No. 333-139705) (the
"Form S-4") filed with the Securities and Exchange Commission (the "Commission")
on April 11, 2007, contained in the Staff's letter dated April 25, 2007. In
accordance with the Staff's request, this letter includes the Staff's comment
from its aforementioned letter and Wellsford's response to the Staff's comment.
Wellsford Real Properties Inc. and Subsidiaries Notes to Consolidated Financial
- -------------------------------------------------------------------------------
Statements
- ----------
Note 9. Stock Option Plans, page WF-27
- ---------------------------------------
Staff's Comment 1: Please advise us how you have concluded that the
adjustments to outstanding options did not have any financial statement impact.
It appears that the reduction in exercise price and extension of option terms
disclosed on page WF-28 resulted in award modifications for which you may be
required to record additional compensation expense. Please refer to the
accounting literature that you are relying upon in your response.
Securities and Exchange Commission
Page 2
Response: On January 26, 2006, the Wellsford board of directors approved
certain adjustments to the number of options outstanding and the related
exercise prices of such options in order to prevent a dilution of benefits to
option holders arising from the initial liquidating distribution made to
Wellsford stockholders of $14.00 per share on December 14, 2005. This
anti-dilution provision was included in the original incentive plan documents
and this action by the board of directors was taken to establish the pricing of
this provision. As described in the footnote on page WF-28, "The adjustment
reduces the exercise price of the outstanding options by the ratio of the price
of a common share immediately after the distribution ($5.60 per share) to the
stock price immediately before the distribution ($19.85 per share) and increases
the number of common shares subject to outstanding options by the reciprocal of
the ratio. As a result of this adjustment, the 520,665 options outstanding as
of December 31, 2005 were converted into options to acquire 1,845,584 common
shares and the weighted average exercise price of such options decreased from
$20.02 per share to $5.65 per share." Management referred to paragraph 54 of
Statement of Financial Accounting Standards No. 123R, "Share-Based Payments"
("SFAS No. 123R") and determined that the modification was designed to equalize
or maintain the fair value of an award before and after an equity restructuring,
which for purposes of this is the initial liquidating distribution. The
adjustment approved by the board of directors resulted in no change in fair
value and, accordingly, no incremental compensation cost was recorded for these
adjustments.
Also on January 26, 2006, the Wellsford board of directors authorized an
amendment to outstanding options to allow an option holder to receive, in
exchange for the cancellation of the holder's option, a cash payment equal to
the amount by which the fair market value of the share of stock underlying the
option exceeds the exercise price of the option. This modification to each
option agreement to allow for the settlement of the award in cash changed the
accounting of such awards to the liability method as required by paragraph 32
(b) of SFAS No. 123R. Management also considered that Wellsford's financial
statements during 2006 are presented on the liquidation basis of accounting
which presents assets at fair value and liabilities at net settlement amounts.
During the first quarter of 2006, Wellsford recorded a liability and a charge to
net assets in liquidation of $4,227,000 in recognition of this amendment and in
compliance with both SFAS No. 123R and reporting requirements of the liquidation
basis of accounting. Subsequently, Wellsford re-evaluated and modified the
liability at each quarterly period to reflect the estimated settlement amount
for outstanding options based upon the price of Wellsford's common stock at each
measurement date after considering traditional option exercises and
cancellations from this cash payment feature during each period. In accordance
with paragraph 36 of SFAS No. 123R, the initial liability and the subsequent
adjustments resulting from the change in the market price are separately
presented in the Statement of Changes in Net Assets in Liquidation.
In addition, the Wellsford board of directors extended the maturity dates
of certain non-qualified out-of-the-money options which had original maturity
dates prior to December 31, 2008 to the later of December 31 of the year of
original expiration or the 15th day of the third month following the date of the
original expiration as permitted by the Internal Revenue Code. All of the
options for which the maturity dates were extended were fully vested prior to
this modification. This board of directors' action did not change management's
conclusion that the options already required liability accounting as a result of
(1) the cash payment feature
Securities and Exchange Commission
Page 3
mentioned in the prior paragraph and (2) Wellsford reporting under the
liquidation basis of accounting. Therefore, utilizing a measurement methodology
for equity award accounting was not applicable.
Wellsford's disclosures on page WF-29 describe the provision recorded in
the first quarter of 2006 resulting from these modifications and the adjustment
of the liability at December 31, 2006. In addition, in Wellsford's accounting
policy footnote on page WF-14 and WF-17 management describes the accounting
policies applicable to these awards. Accordingly, management believes that the
adjustments are accurately described.
* * *
We trust that the foregoing is responsive to the Staff's comment. Should
you have any additional questions or comments, please do not hesitate to contact
the undersigned directly at 212-556-2265 or at the address indicated above.
Thank you for your assistance.
Very truly yours,
/s/ Stephen M. Wiseman
Stephen M. Wiseman
smw
cc: Ms. Elaine Wolff
Mr. Michael McTiernan
United States Securities and Exchange Commission
Mr. Jeffrey H. Lynford
Mr. Mark P.Cantaluppi
Wellsford Real Properties, Inc.
Mr. Lloyd Lynford
Reis, Inc.